LONDON (BBC News): The pound has hit a 21-month high against the euro following increasing speculation of a delay to Brexit. At one point, sterling was up by nearly one euro cent at €1.1643, its highest since May 2017.
Prime Minister Theresa May said in the Commons that if no deal is agreed and if a no-deal exit is rejected, then there could be a short extension to the date for Britain to leave the EU.
The markets had started to price in this option before Mrs May’s speech. Against the US dollar, it reached $1.3239 – its highest level since the end of January. Neil Wilson, from Markets.com, said: “Sterling has rallied on movements in the political space that have encouraged the bulls. “If no-deal is abandoned, it would likely entail a delay to Brexit, and whilst assuaging concerns about crashing out without a deal in place, it would not remove all the uncertainty.”
The value of the pound fell sharply in the aftermath of the Brexit referendum result.
On Tuesday, Bank of England governor Mark Carney told MPs on the Treasury Committee that the Bank would provide more support for the economy in the event of a no-deal Brexit.
He said the Bank’s Monetary Policy Committee had emphasised that its response to the shock of a no-deal Brexit would depend on the economic situation.
“Given the exceptional circumstance associated with Brexit, I would expect the committee to provide whatever monetary support it can consistent with the price stability remit given to the committee by Parliament. But there are clearly limits to its ability to do so,” he said.
He also warned that interest rates might have limited scope to support any damage to activity or jobs in event of a no-deal scenario, as they may have to rise instead to curb inflationary pressures.
He added that if Britain left the EU with no deal, “I guarantee you the path of GDP in our forecast will be materially lower than it is in our February forecast, which assumes that there is a deal and there is a smooth transition”.